Green, ESG bonds the ‘biggest trend’ for Asia

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A Simmons & Simmons lawyer who was instrumental in advising guarantors on a recent issuance of Asean green bonds says finance sectors are growing more interested in the instrument in the region as environmental, social and governance (ESG) concerns increase.

Based in Hong Kong Jay Lee led the Simmons & Simmons team assisting the Credit Guarantee and Investment Facility (CGIF), a multilateral facility established by the governments of China, Japan, South Korea, Asean and the Asian Development Bank, as the guarantor in the issuance of MYR150 million (USD36 million) in Asean green bonds due 2024 by Hanwha Q Cells, a Malaysian subsidiary of Seoul-based photovoltaic solar cells manufacturer of the same name.

Lee told Asia Business Law Journal that more issuers, underwriting banks and securities houses had been showing interest in tapping into green bond markets in the region. “Some Asian governments such as those of South Korea, Singapore and Hong Kong are even known to be planning to issue green bonds of their own,” he said.

Lee anticipated that the biggest trends in Asian debt capital markets in the coming years may be the good growth of the green and other ESG-related bonds.

“With growing concern about climate change issues, and increasing awareness and interest in ESG financings, I anticipate that there will be more continuing trends in the issuances of green sukuk [Islamic bond] in Malaysia,” he said.

However, Lee observed that other participants in the deal were still not fully familiar with typical green bond documentation requirements. For example, if properly issued, green bonds should include more contractual and disclosure requirements that might not be needed in non-green straight bonds.

“In Asia, which is known to remain behind the EU, UK and US in respect of ESG and ESG financing areas, there are certain catch-up steps that we need to go through,” he said. “I believe these are education steps that Asian green bond market participants need to go through to grow green bonds markets in the region.”

The guarantee obligations for the green bonds in the MYR issuance are shared between CGIF and the Export-Import Bank of Korea. The “green” certification and ESG components of the issuance were provided by Sustainalytics, a global ESG research and rating provider, and the green bonds have an AAA(fg) rating from Kuala Lumpur-based RAM Rating Services.